Astro, Inc

question 23

Essay

Astro, Inc. uses target costing and will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are working to fine-tune the company's sole service, which hopefully will generate a 12% return (profit) on the firm's $24,000,000 asset investment. The following information is available:
Hours of service to be provided: 34,000
Anticipated variable cost per service hour: $30
Anticipated fixed cost: $2,560,000 per year
Required:
A. How much profit must Astro produce to achieve a 12% return?
B. Calculate the revenue per hour that Astro must generate to achieve a 12% return.
C. Assume that prior to entering the marketplace, management conducted a planning exercise to determine whether a 14% return could be attained in year no. 2. Can the company achieve this return if (a) competitive pressures dictate a maximum selling price of $195 per hour and (b) service hours, variable cost per service hour, and fixed costs are the same as the amounts anticipated in year no. 1? Show calculations.
D. If your answer to part "C" is "no," suggest and briefly describe a procedure that Astro might use to achieve desired results.

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Definitions:

Primary Circular Reactions

Early infantile behaviors that repeat because the infant finds them pleasurable, typically developing between 1 and 4 months of age.

Reflexive Schemas

Cognitive structures that enable individuals to reflect on, adjust, and organize their thoughts and experiences.

Goal-directed Behavior

Actions taken with the intention of achieving a specific outcome or objective.

Assimilation

In Piaget’s theory, the process by which new experiences are interpreted and integrated into preexisting schemas.